In the last years, I had the chance to devote most of my waking hours to think about a big issue for any business: distribution.
The way a company structures its operations become vital to its long-term ability to create value. In fact, the business model is an essential part of any business. Often, especially in the start-up world, there is the belief that a great product or service is all you need. However, that is not the case. In fact, the tech giants listed in this article all mastered distribution. There is no doubt that each of them has excellent products and offer incredible services. However, without a proper distribution strategy, their success wouldn’t have been possible.
Apple: It’s all about the iPhone
Apple’s business model is based on the sales of products. It undeniable that the value of those products is based on Apple’s ability to create a friendly environment for its products. Had the Apple store not existed, would have Apple managed to sell over 77,316 iPhone and 13,170 iPad in 2017 alone? I doubt it!
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Revenues in Bln ($)
|
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| iPhone | 141,319 | 61.6% |
| iPad | 19,222 | 8.4% |
| Mac | 25,850 | 11.3% |
| Services | 29,980 | 13.1% |
| Other (Apple TV, Apple Watch, Beats, iPod touch) | 12,863 | 5.6% |
| Total | 229,234 |
However, as of 2017, the iPhone represents over 61% of the total sales.
Microsoft: The octopus of tech!
Founded in 1975 Microsoft has survived a few tech bubble and thrived. In fact, as of the time of this writing, Microsoft is still one of the most valued companies, with a market capitalization of over seven hundred billion dollars. That is also because the company has been able to use the excess cash it generated in the last decades to acquire new ventures.
In fact, when Microsoft sniffs a trend, it goes all in. For instance, in 2016 Microsoft bought LinkedIn to enter in the professional network space. Microsoft is also in the search and advertising industry with Bing. In short, Microsoft has been able to use its cash cow, the Microsoft Office System to diversify its business model.
| Revenues in Bln($) | ||
| Microsoft Office system | 25,389 | 28.2% |
| Server products & tools | 21,758 | 24.2% |
| Xbox | 9,256 | 10.3% |
| Windows PC operating system | 8,625 | 9.6% |
| Advertising | 6,971 | 7.7% |
| Consulting & product support services | 5,588 | 6.2% |
| Devices | 4,557 | 5.1% |
| 2,268 | 2.5% | |
| Other | 5,538 | 6.2% |
| Total | 89,950 |
Amazon: The everything store
Amazon is one of the most disruptive tech companies. It started as an online book store to become the everything store; even though most of its revenues come from its store. There is a growing part of the business that relies on seller services, subscription services (Prime), cloud-based services (AWS). Therefore, Amazon too has a diversified business model.
It is highly probable that the part of the business related to seller services, subscriptions, and cloud-based services will be the most critical part of the company also from the revenue generation standpoint.
| Revenues in Bln($) | ||
| Online stores | 108,354 | 60.9% |
| Physical stores | 5,798 | 3.3% |
| Third-party seller services | 31,881 | 17.9% |
| Subscription services | 9,721 | 5.5% |
| AWS | 17,459 | 9.8% |
| Other | 4,653 | 2.6% |
| Total | 177,866 |
Google: The tech giant that became the web
Google’s business model is based mainly on advertising. Even though the company has placed some bets on products that are not related to its main business model. Even though Google was a latecomer in the search engine industry, it took it over with the algorithm that changed the web: PageRank.
| Revenues in Bln($) | ||
| Advertising | 95,375 | 86.0% |
| Other (Apps, Google Cloud, Hardware) | 14,277 | 12.9% |
| Bets (Access, Calico, CapitalG, GV, Nest, Verily, Waymo and X) |
1,203 | 1.1% |
| Total | 110,855 |
As of 2017 86% of the revenues come from the advertising networks of Google. In fact, advertising generates over ninety-five billion dollars in revenues; no doubt that is the cash cow for Google. It is also true that the company is growing other revenue streams (such as Apps, Google cloud, Hardware). Those sources will grow more and more in the future as Google will rely less on advertising.
Facebook: The social network
Facebook has been able to tap into the value of its billion users. Facebook‘s business model is based on advertising. In fact, as of 2017 over 98% of its revenues came from advertising.
| Revenues in Bln($) | ||
| Advertising (Facebook and Instagram) | 39,942 | 98.3% |
| Payments and other fees | 711 | 1.7% |
| Total | 40,653 |
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